Federated Investors (FII) President & CEO J. Christopher Donahue spoke yesterday at a Banc of America Securities conference in Boston and discussed the flight to quality, SIVs, Treasury fee waivers, functional equivalency, consolidation, and asset growth. Donahue said Federated has grown its money fund assets by $28 billion year-to-date, and has added "$14 billion in state funds such as Florida and Texas".
On near-zero repo and Treasury rates, he said, "[L]ast week because of the tremendous demand for Treasury-only repo ... we were actually doing repo at 28 bps. This meant that some of the government funds with expense ratios of 100 bps were in a position where a waiver was necessary in order to have a 5 bps yield.... This meant that we shared with some of our partners (25% Federated/75% partner) that particular waiver. The net effect of all of this to Federated on the few days that this was done was a few thousands of dollars, an inconsequential amount." Donahue adds that similar waivers also occurred following 9/11 and when Fed funds was at 1%.
Donahue said that of the 30 SIVs created, Federated purchased 4. On the funds' $1.5 billion (less than 2%) holdings in Sigma Finance, he says, "We are comfortable with our position and ... [expect it] will continue to pay off on-time and in full until they mature in August of this year." On the Fed rate cycle, he said, "We have been in this business since the '70's. What we have seen historically is that we end up with higher highs and higher lows in each Fed cycle." The company continues its work on 15c3-3, saying, "The other opportunities are part of our effort to continually expand new ways of using money funds."
When asked why there hasn't been more consolidation, Donahue said, "Overall, the money fund industry is solid and is very, very resilient, and has been able to withstand some of the most dramatic and unexpected changes in the short-term that any of us have seen. And we've been in it the whole time."
